Sherlock, in the throes of a violent nicotine fit (he swore to quit cold turkey and is not precisely making a rip roaring success of it) and a perfect frenzy of boredom, pines for a case to work upon. After ridiculing an e-mail from a child who asks him to find her "luminous rabbit" named Bluebell, he is visited by Henry Knight, a man whose father was ripped apart by a gigantic hound on Dartmoor twenty years earlier. Henry, then a small child, had fled in terror only to be found in a bewildered state the next morning. After years of not knowing whether he imagined it, Henry has visited the hollow where the killing occurred, and found gigantic paw prints of a dog, prompting his request for help from Sherlock Holmes. Although initially dismissive, Sherlock suddenly becomes interested after being struck by Henry's use of the archaic word "hound".
Sherlock agrees to come down to Dartmoor.

Sherlock and John interview the Dartmoor locals at a local vegetarian restaurant and inn and find that the hound has become a local legend with a guide who takes people on treks around the moor. The pair then visits the nearby Baskerville Military Base. Sherlock gains access using an ID card taken from Mycroft Holmes. They are introduced to various officials in the base: Commander Major Barrymore, genetic scientist Dr Jacqui Stapleton and Dr Bob Frankland. Sherlock deduces that Dr Stapleton is the mother of the little child who contacted him about Bluebell. When their credentials finally cause a security alert, Dr Frankland vouches Sherlock's identity as Mycroft, despite knowing Sherlock's real identity. Frankland intimates that he was a friend of Henry's father and displays a considerable concern about his well-being.

Later on that night, Sherlock and John visit Henry Knight, who tells them about the words "Liberty" and "In" he sees in his dreams. Sherlock convinces Henry to visit the moor in the hope of confronting the beast. Along the way, John gets distracted and follows his own path where he notices what seems to be a Morse-code signal. Meanwhile, Sherlock and Henry arrive at the center of the hollow, where they suddenly hear growling. John finally arrives at the top of the hollow just as Henry sees the beast and panics. The three of them leave in a hurry, Sherlock claiming to have not seen anything.

That night, at the inn, Sherlock is visibly shaken and he confesses that he actually saw the hound. John pursues the Morse-like signals, which turn out to be unrelated headlight flashes. On his way back, Sherlock asks John to interview Henry's therapist, Dr Louise Mortimer. During the interview, Dr Frankland drops by and blows John's cover, revealing him to be Sherlock's assistant, which causes Mortimer to leave. Meanwhile, in his house Henry Knight appears to hallucinate about the hound.

In the morning, Sherlock suggests that "hound" might not be a name, but an acronym. He also claims that the dog he saw was not just large and black with red eyes, but also emitting a sort of eerie glow. The pair run into DI Greg Lestrade who was sent to Dartmoor by Mycroft to keep an eye on Sherlock. They interrogate the innkeepers, Gary and Billy about a copious order for meat which John has spotted, which struck him as odd for a vegetarian restaurant. The proprietors own up to keeping a dog on the moor to boost the tourist trade, but assure they have had it killed because it was uncontrollable. This satisfies Greg but not Sherlock who assures that the dog he saw was monstrous.

Using an ID pass 'borrowed' from Mycroft, Sherlock gains access to Baskerville for 24 hours despite Major Barrymore's anger. In the lower levels of the facility, John investigates the genetics labs where he observes various cages for test animals and a few leaking gas pipes in a confined chamber. As he leaves the chamber, he is stunned by a glaring light and a screeching siren. Trying to leave the lab, he finds his pass-card access denied. He hears a growling sound and immediately assumes that it is the hound. Locking himself in one of the empty cages, he calls Sherlock who asks him to describe what he sees. Rendered speechless from horror, John is eventually rescued by Sherlock. Sherlock asks him what he saw, and John claims that the dog he saw was exactly how Sherlock had described earlier, glowing.

They confront Dr Stapleton, who admits that genetic mutation experiments were conducted on animals. Sherlock now believes that the hound was a manifestation of a drug that causes hallucinations, contained in Henry Knight's sugar bowl, but analysis of the sugar reveals nothing. Using the method of loci ("mind palace"), Sherlock reaches the conclusion that the words 'Liberty' and 'In' seen by Henry in his dreams stand for Liberty, Indiana. Taking the geneticist into their confidence, Sherlock and John try to access the confidential files in the Baskerville database, only to be stumped by a CIA database password, only accessible by Major Barrymore. After observing the commander's office, Sherlock deduces Barrymore's password and accesses the database. "H.O.U.N.D" is revealed to be a secret military project aimed at creating a chemical weapon that triggers violent hallucinations in the brain. Looking at a photograph of the scientists involved in the project, Sherlock realises that Dr Frankland was involved with the project. At that moment, John receives a phone call from Dr Mortimer who tells him that Henry went on a rampage with a pistol while she was with him at his house, before running off to the moor.

Assuming that Henry went to the hollow where his father died, Sherlock summons Greg and they rush to the scene. They find a delirious Henry Knight, about to commit suicide. Sherlock talks him out of it, explaining that the hound was just a hallucination and that his father was attacked by Frankland, wearing a gas mask with red-coloured lenses and a jersey with "Hound. Liberty, In" written on it. Henry's memories were subdued due to the trauma but as he began to remember the incident, he had to be silenced as well. As another murder would arouse suspicion, Frankland decided that driving Henry insane and therefore casting doubt upon his story would be a better option. With pressure pads installed around the hollow which released a dose of the chemical compound, each time Henry attempted to face his fears he would be pushed further into madness. As Henry calms down, they all hear the howling of a hound, which had not been killed but simply abandoned by the innkeepers and now appears at the edge of the hollow. In a fit of terror, Sherlock sees the image of Jim Moriarty descending upon him. As he grapples with the phantom criminal, it turns into Dr Frankland who desperately shouts for them to kill the advancing hound. The hound leaps upon the party, only to be shot down by Greg and John. Henry flies into a vengeful rage and attempts to throttle Frankland but the doctor runs away. After a brief chase, he runs into the Baskerville mine field and is blown up.

The next day, Sherlock and John are having coffee, discussing the case. John is confused as to why he saw the hound in the lab despite not having inhaled the gas from the Moor. Sherlock tries to explain that the pipes in the lab must have been leaking the gas, but John correctly guesses that Sherlock was the one who locked him in the lab as an experiment.

In the last scene of the episode, Mycroft orders the release of Moriarty from a government facility in which Moriarty has written Sherlock's name all over the walls.

The H.O.U.N.D. drug was first made in the eighties by five men and women-Leonard Hansen, Jack O'mara, Mary Uslowski, Rick Nader and Elaine Dyson, as an aerosol disperser for chemical warfare to induce fear and stimulus into the enemy to weaken them. The project was shut down in 1986 due to the damage it did to the subjects (frontal lobe damage, paranoia, insanity) and what they did to others (murder).

Bob Frankland was originally a friend of the team but was convinced that the drug would one day work, and continued testing it on people. Henry Knight's father realised what Frankland was doing and Frankland was forced to take action. One night, when the Knights were walking on the moor, Frankland dosed a young Henry Knight and his father with the drug, while staying safe due to a gas mask. With Knight senior disoriented, Frankland murdered him. Henry only saw the red eyes of the gas mask and Frankland's T-shirt-with the H.O.U.N.D logo on it and 'Liberty In'.

Twenty years later, Henry started to remember what really happened that night. So Frankland put pressure pads in the ground at Dewer's Hollow, so whenever Henry went there he would be dosed with the drug – slowly turning him insane. Whenever Henry did see the hound, he only saw an ordinary dog but the way he expected to see it.

Sherlock Holmes figured out what Frankland was doing and chased Frankland onto the Grimpen mine field where Frankland stepped on a mine and was blown up. After Frankland's death, the project was stopped for good.

Sherlock calls Greg "brown as a nut," a phrase taken word-for-word from a different conversation in A Study in Scarlet.

When Sherlock is trying to find his hidden cigarettes, he also searches a slipper. This is a reference to "The Adventure of the Musgrave Ritual", in which Watson mentions that Holmes keeps his tobacco in the toe end of a Persian slipper.

The episode contains two references to "The Adventure of the Blue Carbuncle". Holmes uses the same ruse of pretending to have a bet with Watson to get an individual to reveal information.

Henry Knight quotes the words of Dr Mortimer from the book, "Mr Holmes, they were the footprints of a gigantic hound!"

Watson sees a flashing light upon a hill at night and thinks it is a signal- he writes down the morse code it appears to be sending; in the book, Barrymore the butler holds a lamp to one of the windows of Baskerville Hall as a signal to his wife's brother, the convict, who is living on the moor and who replies with a light signal using a candle.

Sherlock shows an interest in the hound case, but says that he must stay in London and that Watson must go alone (a way of making Watson reveal the hiding place of his cigarettes). In the book, Holmes sends Watson alone to the Devonshire despite showing a clear interest in the case.

Sherlock's tobacco craze and impulsive announcement that he is "going to Dartmoor" is straight from the opening of the Holmes short story, "Silver Blaze".

The car Sherlock drove was the same car that that woman was sitting in in The Great Game who was going to blow.

Lestrade is no longer seen wearing his wedding ring from this episode, possibly due to the deductions by Sherlock on "A Scandal In Belgravia" that his wife is having an affair with a PE teacher. A visible tan line evident on his finger.

British Army personnel are not allowed to have beards. However, Major Barrymore's full beard is a nod to the original canon character on which he's based, John Barrymore, who is described in the book multiple times as being a "black-bearded man."

When Sherlock mocks John about his big dog theory, he says,"Cherchez le chien" which means "look for the dog" in French. Which is probably a wordplay of "cherchez la femme" ("look for the woman") which is used to express the idea that the source of any given problem involving a man is liable to be a woman.[3]

According to the episode commentary, in the original script, John was supposed to be driving the Land Rover with Sherlock as the passenger. But it was changed as Martin Freeman does not know how to drive.

Sherlock knows that Lestrade just returned from holiday because of his tan. According to the episode commentary, in real life, Rupert Graves was tan because he had just returned from Guadeloupe while filming Death in Paradise. His tan was written into the script.

According to the episode commentary, in the original script, John was to see the hound in a meat locker, but while scouting the location, the producers determined it would be too expensive to film there and too cold for Freeman.

In the original script, Dr Mortimer was to be killed by Henry but this idea was discarded.[citation needed]

Young Dr Franklyn in the picture Sherlock finds is actually Michael Price, one of the series' soundtrack composers.[citation needed]

Sherlock quotes the popular catchphrase "Once you've ruled out the impossible, whatever remains, however improbable, must be true," which was also quoted by Spock in Star Trek VI: The Undiscovered Country (1991) and Star Trek (2009). John replies to this, "Yeah, all right, Spock, just ... take it easy."

The scene in which Sherlock clambered to the top of a Dartmoor mound reminded Chris Harvey, again from The Daily Telegraph of Caspar David Friedrich's painting Wanderer above the Sea of Fog.[4]

Dr Stapleton says that she spliced a glowing gene (the GFP gene) from a jellyfish into a rabbit (Bluebell). When Sherlock turns off the lights in her lab the rabbit glows. However the GFP gene only fluoresces under UV light, simply turning off the lights would not cause the rabbit to glow.[citation needed]

Dr Stapleton refers to a test monkey as "Harlow 3." This could be a reference to Harry Frederick Harlow, an American psychologist best known for his controversial psychological experiments on rhesus monkeys, which demonstrated the importance of care-giving and companionship in social and cognitive development. Some researchers cite the experiments as a factor in the rise of the animal liberation movement in the United States.[citation needed]

In the credits of Sherlock on Masterpiece Mystery on PBS, some of the letters were highlighted red. Letters from this episode spells out U-M-Q-R-A, the 'morse code' John notes.

Dr Watson should not have returned Corporal Lyons' salute. As a Captain in the British Army, he would know that you never salute or return a salute when not in uniform. British and Commonwealth service personnel would just salute. They do not need to hold a salute while waiting for return salute as is the case with US personnel.[citation needed]

When Sherlock is looking for his secret supply of cigarettes, he points his harpoon at Mrs Hudson. After he identifies the perfume she is wearing, he stops pointing his harpoon at her, however when the camera is facing back at her, the tip of the harpoon is seen pointed at her again even though Sherlock is holding it upright.

When John and Sherlock first see Lestrade inside the bar, he has a beer. In one shot he lifts it to take drink, but the next time you see the beer it is still completely full.

Sherlock finds a photo of Major Barrymore's father and says he's wearing the Distinguished Service Order. The ribbon is not that of the DSO.[citation needed]

Right after Watson says "Did you see it? You must have," at the lab, the camera tilts up and the studio where the lab was built becomes visible above the lab's "ceiling."